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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
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  • Factoring Firms
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      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
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    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
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      • Credit Suisse Bailout
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Home Securitisation

The Roles of Deal Arrangers and Book Runners in Securitization

John Goodden by John Goodden
June 12, 2023
in Securitisation
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The Roles of Deal Arrangers and Book Runners in Securitization
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Download file | Play in new window | Duration: 7:12 | Recorded on June 1, 2023

Securitization Market

The securitization market is a segment of the capital market where securitized assets are issued and traded. Securitized assets are securities backed by pools of underlying assets, such as accounts receivable, mortgages, loans, credit card receivables, auto loans, student loans and other types of assets.

The securitization market provides a source of funding and liquidity for originators, as well as a source of investment and risk diversification for investors. The securitization market also helps to improve the efficiency and stability of the financial system by transferring credit risk from originators to investors.

The securitization market is a global and dynamic market that varies in size and activity across different regions and asset classes. According to the Securities Industry and Financial Markets Association (SIFMA), the global securitization market outstanding was $11.4 trillion as of the end of 2020, with the US accounting for $9.6 trillion, Europe accounting for $1.2 trillion, and Asia accounting for $0.6 trillion.

Accounts receivable securitization is a type of securitization where the underlying assets are trade receivables, which are amounts owed by customers to a business for goods or services delivered. Accounts receivable securitization can help businesses to improve their cash flow, reduce their credit risk, lower their financing costs, and enhance their balance sheet.

Accounts receivable securitization is a relatively small but growing segment of the securitization market. According to Moody’s Investors Service, the global issuance of accounts receivable securitization was $18.8 billion in 2020, up from $16.7 billion in 2019, with the US accounting for $12.8 billion, Europe accounting for $3.8 billion, and Asia accounting for $2.2 billion.

Two of the key parties involved in securitization are the deal arrangers and the book runners. They are usually investment banks that provide different services and functions throughout the securitization process.

Deal Arrangers

Deal arrangers are responsible for designing and structuring the securitization transaction, including the selection of the assets to be securitized, the creation of the special purpose vehicle (SPV) that will issue the securities, the determination of the cash flow allocation and credit enhancement mechanisms, and the negotiation of the terms and conditions with the originator, the investors and other parties.

Deal arrangers also provide accounting, regulatory and tax advice to ensure that the securitization transaction meets the relevant requirements and objectives of the originator and the investors. They may also perform due diligence on the assets to be securitized, such as verifying their quality, performance and eligibility.

Deal arrangers may work with other parties, such as lawyers, rating agencies, trustees and servicers, to facilitate the execution and closing of the securitization transaction.

Book Runners

Book runners are responsible for marketing and distributing the securities issued by the SPE to investors. They are also known as lead underwriters or lead managers. They assess the market conditions and demand for the securities, and determine the initial value and quantity of the securities to be sold.

Book runners may syndicate with other underwriting firms to reduce their risk and broaden their distribution network. They may also coordinate with other book runners in case of multiple lead underwriters involved in a securitization transaction.

Book runners are in charge of the books, which are the records of the orders and allocations of the securities. They manage the book-building process, which involves soliciting and collecting bids from potential investors, and allocating the securities among them. They also provide pricing and settlement services to the investors.

Book runners may also provide ongoing services to the investors, such as periodic reporting, investor relations and secondary market support.

Lead Underwriters

Lead underwriters are another term for book runners, as they are the primary underwriters or lead coordinators in the issuance of new securities. They are in charge of the books, which are the records of the orders and allocations of the securities. They also play the most important role in the transaction and typically retain the most significant portion of the securities for themselves.

Lead underwriters may also be called lead arrangers or lead managers, depending on the context and the type of security issuance. For example, lead arrangers are more commonly used for debt securities, such as bonds or loans, while lead managers are more commonly used for equity securities, such as stocks or warrants.

Syndication

Syndication is the process of forming a group of underwriters to share the risk and responsibility of issuing new securities. Book runners or lead underwriters may syndicate with other underwriting firms to reduce their risk and broaden their distribution network.

Syndication allows book runners to diversify their exposure and access more potential investors, especially for large or complex securitization transactions. Syndication also helps book runners to comply with regulatory requirements, such as antitrust laws or market concentration limits.

Syndication involves dividing the securities among the underwriting firms according to their participation level and role. The book runner or lead underwriter is usually listed first among the other underwriters participating in the issuance, followed by co-managers, senior co-managers, co-lead managers and selling group members.

Conclusion

Deal arrangers and book runners play important roles in the securitization process, as they provide various services and functions to the originator, the SPV and the investors. They work together to ensure that the securitization transaction is successfully executed and closed, and that the securities are properly marketed and distributed. By doing so, they help facilitate the flow of capital and risk in the financial markets.

Tags: book runnersdeal arrangerssecuritizationSPVsyndication
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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
    • Europe
      • UK
      • France
      • Germany
      • Italy
      • Spain
      • Holland
    • North America
      • USA
      • Canada
    • Australasia
      • Australia
      • New Zealand
  • Hi-Tech
    • Digital Platform/IT/Software Providers
    • UK Fintech
    • Articles
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
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      • Economic Forecast for the UK in 2023
      • Economic News for 2022
      • Financial Crisis or Not?
      • Credit Suisse Bailout
  • Credit Insurers
    • Credit Insurers
    • Articles
      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
      • What are Export Credits and Country Risk Classifications?
      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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    • UK Passes Financial Services and Markets Act 2023
    • Latest about the UK Regulatory Proposal for Crypto Assets
    • How will MiCA (Markets in Crypto Assets) Regulation Affect Trade Finance and the Banking System?
    • Markets in Crypto Act (MiCA) Becomes EU Law
    • An Introduction to EU’s Markets in Crypto-Assets (MiCA) Law 
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    • How DeFi Fulfils the Functions of Finance
    • Taxonomy of Crypto Assets
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